CHAPTER   14

The Right Way to View Asset Allocation

One myth that came about in the late ‘80s and early ‘90s is that asset allocation is responsible for 90% of your return. The study used to “prove” this did not say so nor did its authors. This was a misunderstanding of the work and was pushed by index fund sellers and asset allocation study providers. Among the flaws of the study: many of the universities in the study used the same managers, and when the managers in an asset class were of different names their correlation and R2 were close. Asset classes were similar. About the only axis on which there could be difference was asset allocation, and it wasn’t much.

What the study actually said was only that the difference between any two portfolios ...

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